Financing budget: how to pay for your plans

What is a financing budget?

A financing budget is an overview that shows how you will pay for your business investments and other costs. You can use your own money, borrow money, or mix different types of financing. The basis for a financing budget is the investment budget, in which you calculate how much money you need for your plans.

How to create a financing budget

Start with the amount from your investment budget and work out how much money you can and are willing to put in yourself. This could be savings, but it could also be a business asset you already own and are contributing to your business. For example, a company car or a computer.

Then work out how much money you still need to raise. Decide which type of financing suits you best for this sum. For example, you could take out a loan from a bank or another lender. Leasing, crowdfunding, or a loan from family or friends are also options.

Compare different types of financing, and do not focus only on the sum you can borrow. Also look at the interest rate, term, repayment plan, and other terms and conditions. This way, you will know what the financing will cost you in total.

Own funds and borrowed money

The money you put into your business yourself is called equity capital. Money that you borrow is called debt. A mix of own funds and borrowed funds is common.

For example, if you have €20,000 of your own money and need a total of €47,000, you still need to raise €27,000. Your own contribution is then about 43% of the total amount.

Lenders look, among other things, at the ratio between your equity capital and your business’s total assets. This ratio is known as the solvency ratio. A higher solvency ratio generally means that your business has greater financial scope to cope with setbacks.

The amount of your own funds a lender expects you to provide varies depending on the lender, the business, and the funding application. There is no fixed percentage that applies to every entrepreneur.

Example of a financing budget

The solvency ratio is calculated by dividing equity by total assets. You multiply the result by 100%. In this example, it is (25,000 / 47,000) x 100 = 53.2%.

Combining different forms of financing

You do not always have to choose just one type of financing. You can combine different forms. This is known as stack financing. For example, you could use €20,000 of your own funds, borrow €17,000, and lease €10,000 worth of business assets. That way, you have secured the financing.

Which mix suits you best depends on your business, your funding needs, and the terms that the various lenders offer. Take a look at the different types of financing available and their key features. The Financing Finder tool can help you find the best form of funding for your plans.

Financing budget as part of your financial plan

Your financing budget forms part of your financial plan. Complete the plan with an investment budget, an operating budget, and a liquidity budget. Also, include a personal budget that shows how much money you need for personal use and what amount of this must come from your business.